News Notes: Back Wages Are Taxable In The Year Paid

In an appeal by the Cleveland Indians baseball team, the U.S. Supreme Court has ruled that back wages are subject to federal Social Security and unemployment taxes in the year they are paid, rather than in the year they were earned. The dispute arose out of a settlement of grievances asserted by major league baseball players over free agency rights. Several professional teams agreed to pay players a total of $280 million in back pay for 1986 and 1987. The Cleveland Indians paid the awards in 1994, when the FICA and FUTA tax rates were significantly higher, and argued unsuccessfully that the back pay awards should be taxed at the lower rates in effect in 1986 and 1987.